Winning a Proxy Contest

Since 2000, the number of activist campaigns launched has increased by more than 500%, according to S&P Capital IQ and Ipreo Research.


In nearly two decades, I’ve seen my share of contentious proxy contests … from both sides of the table.  Here are some of the lessons I’ve learned for developing a winning strategy if you are on the side of facing an activist campaign:


  • No matter what, avoid getting emotional or taking it personally.

For boards and managements faced with a disgruntled shareholder’s demands (whether in the form of a letter to the company or an alternate proposed proxy), it’s understandable to feel like the attack is personal and unwarranted. Maybe your board or CEO has made an attempt to reach out – only to have the shareholder dig in his or her heels or make additional demands (like more board seats, changes in dividend policy, etc.).


It’s easy in those circumstances for frustration and emotions to start to escalate, but a cool head is critical as a board or management team considers the various options available in responding to a shareholder activist’s tactics.


  • Firing the first shot may not give you an advantage.

Unless you’re the activist, firing the first shot in a proxy contest will often do more harm than good. It is the equivalent to picking a fight – one that will likely result in the following:


o   The disgruntled shareholder will most likely become more entrenched and more likely to escalate the fight…and now, you’ve provided the ammunition to attack your position and put you on the defensive.

o   Other shareholders may begin to question whether the company’s management and board are open to shareholders’ concerns and feedback.

o   Employees may begin to question whether the company is stable and can become distracted by any resulting negative media attention.

o   Lastly, firing the first shot often places your board and management into a zero-sum battle with the shareholder and eliminates the likelihood of reaching an agreement or compromise. The only parties who benefit when a proxy fight moves into a zero-sum scenario are the multitude of consultants both sides will have to engage to try and win the war.


In most cases, the best strategy is to prepare for the first shot. By taking a wait and see approach, your team puts itself in a better position to have more options available in choosing a response that will reinforce your team’s credibility and perspective with all stakeholder groups….and force the activist into playing defense.


  • Don’t forget the other stakeholders who will be affected by your actions.

Often, the discussion around a proxy contest focuses on the board and management (“us”) versus the shareholder activist group (“them”).  Other shareholders are often viewed as battlefield prizes to be “won over” and other stakeholders who can influence the vote (such as employees and former employees who hold shares, as well as news media who write on the story) often are forgotten all together.


When developing your battle plan, it’s important to remember that your actions and statements will also be judged by several stakeholders and not just in the context of the vote or the logic of the arguments presented. Important thoughts to consider include:


o   Will our actions and statements be viewed as prolonging or escalating the fight or trying to facilitate a positive and quick resolution?

o   Does this action or statement put us in the role of “emotional instigator” or “cool-headed problem solver?”

o   Will our statements and actions be perceived as being responsive and considerate of shareholders’ interests or for the sake of self-preservation?


  • Keep the big picture in mind.

While it can be easy to forget the “big picture” in the heat of a proxy battle, it’s important that the board remember to always keep in mind its ultimate desired outcomes.  In most cases, the board and management’s ultimate goals are:


a) to preserve shareholder value to the greatest extent possible; and

b) retain majority control over the Company’s strategy.


Each action and reaction should be considered in the context of how it will facilitate bringing the company closer to its desired outcomes in the fastest and most painless way possible.  In a proxy contest, you don’t win points for how many punches or knock outs you can land – but for how you are able to move effectively in bringing the contest to a conclusion with minimal damage to your company.


–E.E. Wang,


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